The southern African Republic of Zimbabwe knows all about currency crisis. In 2009, the country was forced to stop printing its own currency because inflation levels had grown to astronomical proportions. At its highest levels during 2008 and 2009, Zimbabwe’s inflation rate was estimated to have reached 79.6 billion percent. Eventually, the struggling republic was forced to abandon its own currency and cease the runaway hyperinflation. In turn, it adopted others like the South African rand, the euro, and the pound just to keep the economy functioning, according to Bloomberg.
Last week the Reserve Bank of Zimbabwe released a statement announcing the distribution of new dollar-backed bond notes to help with a currency shortage, which is creating a lag in payments to civil servants, military personnel, and employees of private businesses.
However, many Zimbabwe citizens are protesting what they see as a return to hyperinflation caused by government intervention in the markets and money printing. Those against the new bond notes are calling it “zombie money” because it resembles the old Zimbabwe dollar rising from the dead.
Other citizens willing to accept the new notes are complaining they’re not being accepted everywhere, making exchange impossible. There are also reports of price gouging; with some vendors charged three times the US dollar amount if people are paying with the new notes. The situation highlights the fact that what makes currency of any kind valuable is simply the social agreement and trust of those using it.
So far the Zimbabwe government has issued about $10 million worth of bank notes, but it seems to have had little effect on the shortage. The central bank has limited withdrawals to $50 a day, up to a maximum of $150 a week, with many citizens forced to wait in line up to six hours to make withdrawals. Even after getting bank notes, some are finding them reduced from their promised value.
An economist with the Labor and Economic Development Research Institute of Zimbabwe believes the $200 million worth of bond notes the government plans to put into circulation “would not ease the cash shortage,” according to VOA.
Zimbabwe’s crisis underscores the vulnerabilities of a fiat currency and the monetary policies that only exacerbate the problems. The ability to be printed ad nauseam makes a fiat currency less secure than a real source of money like precious metals. Buying gold and silver is an effective way to secure your wealth against the vagaries of central banking policies.